Advertisement

CREDIT : High Oil Prices Keep Key Bond Yield Above 9%

Share
From Times Wire Services

Government bond prices fell Thursday in light trading as oil prices continued their climb, keeping the key long-term interest rate above 9% for the second day.

High-yield junk bond prices also dropped sharply as stock prices tumbled in wild trading for the third consecutive day. The Dow Jones average of 30 industrials plunged 76.73 to 2,483.42.

The price of the Treasury’s benchmark 30-year bond fell 25/32 of a point, or $7.81 per $1,000 face amount. Its yield climbed to 9.13% from 9.05% late Wednesday.

Advertisement

“It’s been an oil day to a great extent,” said Steven R. Ricchiuto, chief economist at Barclays de Zoete Wedd Government Securities Inc.

But bond prices did not slip as far as they did Wednesday, when the yield on the 30-year “long” bond exceeded 9% for the first time since May. That was mainly because oil prices did not rise as much as Wednesday, Ricchiuto said.

The long-bond yield is a benchmark figure used to determine the interest rates on some mortgages and other loans.

An additional factor weakening bond prices was a government report on durable goods orders, Ricchiuto said. The Commerce Department said factory orders for “big-ticket” durable goods rebounded 2.9% in July, a higher rate than many Wall Street experts had forecast.

Signs of an upturn in the economy can hurt bond prices because it lessens the likelihood that the Federal Reserve will ease interest rates. Lower rates benefit fixed-return investments such as bonds.

But one bond trader, speaking anonymously, said the market was focused almost entirely on the Iraqi situation and paid little attention to the durable goods report.

Advertisement

The bond market’s tone was set by trading overseas, where bond prices dropped before domestic markets opened, Ricchiuto said.

The federal funds rate, the interest rate banks charge each other on overnight loans, was quoted at 8.063%, down from 8.125% late Wednesday.

In the tax-exempt market, the Bond Buyer index of 40 actively traded municipal bonds fell 1-5/32 to 88.5. The average yield to maturity rose to 7.71% from 7.60% late Wednesday.

COMMODITIES Gold Gains Slightly; Cattle, Pork in Slide Prices of gold futures posted only modest gains at the Commodity Exchange in New York, despite soaring oil prices.

On other markets, cattle futures plunged the daily limit and grains and soybeans advanced.

The December gold contract has repeatedly touched the $425 level but has lacked the punch to break through.

“Every time it reaches that price it runs into extremely good selling,” said David Syphen, manager of metal futures for Merrill Lynch Capital Markets Inc. in New York. “It shows a fundamental weakness in the market, with very, very willing sellers at those levels.”

Advertisement

He said that if the oil market turns around, “there’s going to be quite a long slide for gold.”

Gold settled $1 to $1.40 higher, with the December contract at $420.30 an ounce; silver was 0.5 cent lower to 0.1 cent higher, with September at $5.135 an ounce.

There was no letup of the Mideast crisis at the New York Mercantile Exchange.

Cattle futures prices plunged as concern grew about the implications of the Mideast crisis.

Pork futures also suffered a setback, particularly bellies, which were down the limit for the third consecutive day.

Beef is more expensive than pork at the meat counter now, making cattle much more vulnerable to outside price swings, said Phil Stanley, a trader at the Merc.

Market Roundup, D6

TUMBLING STOCKS

The plunge in some major blue-chip stocks on Thursday:

Thurs. Point Pct. Stock close drop drop Goodyear 22 1/2 -1 7/8 -7.7% Texaco 60 1/8 -3 5/8 -5.7% Boeing 42 1/2 -2 1/2 -5.6% AT&T; 30 1/2 -1 5/8 -5.1% Dupont 35 -1 3/4 -4.8% Coca-Cola 37 5/8 -1 7/8 -4.8% P&G; 71 1/8 -3 -4.1% Disney 95 1/8 -3 -3.1% Merck 76 1/2 -2 -2.6% IBM 96 7/8 -2 1/8 -2.2%

Advertisement
Advertisement